Housing wealth and u.s. money demand: A panel estimation

This article estimates a panel model for U.S. money demand using annual state-level data for the period from 1977 to 2008. We incorporate housing wealth in the demand-for-money function and find strong evidence of a relationship between a broad monetary aggregate and housing wealth. This finding is robust to the inclusion of variables measuring financial heterogeneity across U.S. regions. Breaking up the sample in two subperiods shows that panel estimates including housing wealth yield more stable coefficients than both time-series estimates and panel estimates excluding housing wealth. We also show that the link between money and housing wealth predates the recent boom-and-bust cycle. (JEL E41, E52)